Roland St-Onge [TRANSLATION] (orally November 1, 1977):—The appeal of Mr Simon Thibault came before me on November 1, 1977 in Montreal, Quebec, and is against penalties levied pursuant to the provisions of subsection 56(2) of the old Act and subsection 163(2) of the new Income Tax Act in respect of the 1971, 1972 and 1973 taxation years.
The respondent contends that, in respect of 1971, the appellant reported income in the amount of $4,886.91 and did not disclose $23,765.64; in respect of 1972, he reported $3,780.27 and did not disclose $10,601.49; in respect of 1973, he reported $13,303.58 and did not disclose $8,590.95; thus, he did not disclose /s of his income for 1971, a little over one-half for 1972 and almost one-third for 1973.
The penalties are $1,135.67, $411.92 and $473.52 for 1971, 1972 and 1973 respectively.
The respondent claims that the appellant committed gross negligence in failing to report such substantial amounts of income, and thus participated in a serious omission resulting in lower taxes for the years in question.
The appellant maintains that he entrusted expert accountants with the preparation of his tax returns and the relevant financial statements, and that he neither contributed to nor participated in any wilful failure to report income or pay tax.
The Board must decide whether the appellant was negligent in dealing with his accountants.
Mrs Raymond, who was a field auditor in 1971, received Mr Thibault’s file for auditing. Upon telephoning him, she was referred to his bookkeeper, a Mr Casey.
The following documents were missing at her first meeting with him: adjusting entries, accounts payable and accounts receivable books, inventories, sales invoices, and supporting documents for expenses.
When Mrs Raymond examined these documents shortly afterward, she discovered that no income had been reported for December 1973.
Study of the cash receipts and disbursements journal and wages account revealed that the entries were not complete for the years in question. Since a number of documents as well as invoices were missing, Mrs Raymond was compelled to proceed by what is known as the Capital reconciliation method.
she arrived at the figures I mentioned at the outset, which were accepted by the taxpayer.
At the hearing, Mr Simon Thibault, a garage owner, testified that he had deposited all his receipts in the bank and had paid all his expenses by cheque.
If the taxpayer had proceeded in the manner he described to the Court, the Department of National Revenue, Taxation employees would have been able to determine his income quite easily, without having to resort to the capital reconciliation method. The appellant further testified that he had not been negligent since he had entrusted everything to his bookkeeper, Mr Casey.
The evidence showed that the appellant’s accounting was very poor, that many supporting documents were missing, and that the appellant had not given his bookkeeper all the information needed for the preparation of his income tax returns.
A taxpayer cannot escape penalty merely by telling the Board that he entrusted everything to his accountant and that any gross negligence must have been committed by him.
It is difficult to see how the appellant was not negligent, since he signed income tax returns reporting incomes substantially less than those he agreed to pay after Mrs Raymond’s investigation. Even though the appellant entrusted the preparation of his returns to an accountant, the low incomes reported were such as to attract his notice.
Thus, his negligence is gross because he reported incomes that were substantially less than those he had earned, and also because he operated his business while failing to keep all the documents needed for the preparation of his income tax returns.
For these reasons, I must dismiss the appeal.
Appeal dismissed.